Boardman Acquisition LLC v. Department of Revenue

Supreme Court of Oregon

May 11, 2017

BOARDMAN ACQUISITION, LLC, a Delaware limited liability company, Plaintiff,v.DEPARTMENT OF REVENUE, State of Oregon, Defendant. PORT OF MORROW, Plaintiff-Appellant,v.DEPARTMENT OF REVENUE, State of Oregon, Defendant-Respondent, and MORROW COUNTY ASSESSOR, Defendant.

Case
Summary: In an ad valorem property tax case, the land at
issue had been exempted from some property taxes because it
was specially assessed as nonexclusive farm use zone
farmland. When such a special assessment ends, the property
ordinarily has an additional tax levied against it. The Port
of Morrow had owned property that was disqualified from
special assessment, which it then sold to a private party,
Boardman Acquisition, LLC. The additional tax was assessed
against the property, and the port sought a refund,
contending that ORS 8A.709');">308A.709(5) applied to eliminate the
additional tax. Held: (1) the statutory text
"the date the disqualification [from special assessment]
is taken into account on the assessment and tax roll, "
ORS 8A.709');">308A.709, means the date the disqualification becomes
effective on the assessment and tax roll; and (2) on the date
the disqualification became effective on the assessment and
tax roll here, the land did not meet the requirements of ORS
8A.709');">308A.709(5).

The
judgment of the Tax Court is affirmed.

BALMER, C. J.

This
case involves ad valorem property taxes. The land at issue
had been exempted from some property taxes because it was
specially assessed as nonexclusive farm use zone farmland
under ORS 8A.068');">308A.068 (2013).[1] As we will explain, when that special
assessment ends, the property ordinarily has an additional
tax levied against it. The question here is whether an
exception created by ORS 3O8A.7O9(5) applies to excuse the
payment of that additional tax. The Tax Court agreed with the
Department of Revenue and concluded that the exception was
not available. Boardman Acquisition LLC v. Dept. of
Rev.. 22 OTR 183 (2015). The Port of Morrow appeals. As
we will explain, we conclude that the statutory text on which
this case turns- "the date the disqualification [from
special assessment] is taken into account on the assessment
and tax roll, " ORS 3O8A.7O9(5)-means the date the
disqualification becomes effective on the assessment and tax
roll. As a result of that holding, we affirm.

I.
OVERVIEW OF LAW

Before
considering the facts at issue here, it is helpful to first
outline farmland special assessments generally. At its core,
the farmland special assessment changes how the land is
valued for tax purposes. Ordinarily, "[t]he real market
value of property is the starting point for determining the
amount of property tax." Dept. of Rev, v.
River's Edge Investments. LLC. 359 Or 822, 825, 377
P.3d 540 (2016) (citation and footnote omitted). In the case
of farmland, however, the legislature explained that it did
not want farmland to be valued at its real market value using
"market data from sales for investment or other purposes
not connected with bona fide farm use, " because doing
so would "encourage [] the conversion of agricultural
land to other uses." ORS 308A.050. Accordingly, the
legislature stated that it intended that "bona fide farm
properties be assessed for ad valorem property tax purposes
at a value that is exclusive of values attributable to urban
influences or speculative purposes." Id.

To
carry out that purpose, the legislature directed that
property that qualifies for the farmland special assessment
be valued using the income approach, not by examining
comparable sales. See ORS 3O8A.O92(2) ("The
values for farm use of farmland shall be determined utilizing
an income approach[, ]" with the capitalization rate
derived from loans on farm properties.). The special
assessment thus allows a taxpayer to avoid some property
taxes, because the property is valued for tax purposes at
less than its real market value.

The
avoided taxes remain a potential liability on the property,
however, should the land lose its qualification for the
special assessment. When specially assessed property is
disqualified, the taxes that had been avoided for up to five
years (in the case of farmland not zoned exclusively for farm
use) are added to the next assessment and tax roll. ORS
3O8A.7O3(2), (3)(d)(A) (specifying period is lesser of five
years or the actual period the land qualified for special
assessment).[2] The statutes describe the avoided taxes
added onto the roll as the "additional tax."

The
additional tax is not assessed in some limited circumstances.
This case turns on whether the exception set out in ORS
3O8A.7O9(5) applies to the land at issue here. ORS 8A.709');">308A.709,
which lists the situations in which the additional tax is
eliminated, provides:

"Notwithstanding that land may have been disqualified
from special assessment, no additional taxes may be imposed
under ORS 308A.703 if, as of the date the disqualification is
taken into account on the assessment and tax roll, the land
is any of the following:

******

"(5) Public property that was leased or rented to a
taxable owner as described in ORS 307.110 at the time of
disqualification, and the reason for the disqualification was
the termination of the lease under which the land was
assessed."

This
case turns on which particular date is meant by the phrase
"the date the disqualification [was] taken into account
on the assessment and tax roll." The port argues that,
on that date as correctly understood, the property was still
owned by the port and therefore was "public
property." Because the other conditions of the statute
also had been met, the port asserts that under the statute,
"no additional taxes may be imposed." The
department counters that the port incorrectly identifies the
date on which the disqualification was taken into account on
the assessment and tax roll. As of the correct date, the
department argues, the property was owned by a private entity
and was no longer "public property." For that
reason, it asserts, the additional tax was properly imposed.

II.
FACTS

The Tax
Court granted summary judgment in favor of the department
based on stipulated facts, which we summarize here. At issue
are taxes on two adjacent lots for the tax year 2013-14. For
at least five years before that time, the Port of Morrow had
owned that property and had leased it to a tenant. The tenant
was subject to property tax. See ORS 307.110. The
tenant qualified the property for special assessment as
nonexclusive farm use zone farmland under ORS 8A.068');">308A.068.

Effective
August 6, 2012, the port and the tenant cancelled the lease.
The port notified the county assessor of the lease
termination on August 7. In doing so, it asked the county
assessor to disqualify the property from special farm use and
special assessment. See ORS 3O8A.ll6(1)(a)
(specially assessed property may be disqualified on
"request" of the taxpayer). The assessor's
staff responded by email the same day:

"This [disqualification] will be processed for 1/1/13,
it is too late to process a [disqualification] for the
current year. We are in the middle of a computer software
change here and things are pretty hectic *** so I won't
be processing this until later this fall but go ahead and
send the official request letter[.]"

Four
days after the lease was cancelled-on August 10, 2012-the
port sold the property to Boardman Acquisition (Boardman).
There is no contention that Boardman qualified the property
for this special assessment (or any other). The sale contract
required the port to pay any additional taxes assessed
against the property because of the termination of the prior
lease and the end of the special assessment. In May 2013, the
county assessor sent a notice of disqualification to
Boardman. The notice stated that the additional tax incurred
by the prior tenant, $127, 270.61, would be added to the
2013-14 tax year. Pursuant to its contract with Boardman, the
port paid those taxes.

The
port sought a refund of the taxes that it paid on behalf of
Boardman. The county assessor denied the refund. The matter
proceeded through the Magistrate Division of the Oregon Tax
Court to the Regular Division, where the parties filed
opposing motions for summary judgment. The Regular Division
(the Tax Court) granted summary judgment for the department.

The Tax
Court began with the statutory text, which eliminates the
additional tax only "'if, as of the date the
disqualification is taken into account on the assessment and
tax roll, the land is'" "'[p]ublic
property'" that had previously been leased to a
taxable party and disqualified by the lease termination. 22
OTR at 190 (emphasis in original; additional emphasis
deleted; quoting ORS 3O8A.7O9(5)). From that, the court
concluded that it had to determine the date on which the
disqualification had been "taken into account on the
assessment and tax roll, " so that it could determine
whether the land, at that particular point in time, met the
conditions of ORS 3O8A.7O9(5): that it was, at that time,
public property that previously had been leased to a taxable
owner and the special assessment for which had been
disqualified by termination of lease. 22 OTR at 190. Based on
ORS 3O8A.O68(3) (which we will discuss shortly), the court
held that the disqualification was not "taken into
account on the assessment and tax roll" until January 1,
2013. 22 OTR at 191. Because the land was not "public
property" on January 1-Boardman had bought the property
nearly four months earlier-the requirements of ORS
3O8A.7O9(5) had not been met. Therefore, the exception did
not apply, and the additional tax was properly assessed
against the property. 22 OTR at 191-92.

III.
DISCUSSION

Throughout
this opinion, we refer to the port as if it were the
taxpayer. We emphasize, however, that the port's
liability is through its agreement with Boardman to pay any
additional taxes due because of the disqualification.
...

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